The benefits of running a fiscally responsible organization extend well beyond oversight and effective fiscal management. Our research here at Capacity Building & Policy Experts, LLC also suggests that organizations that implement strong fiscal controls consistently are more to likely implement practices that result in a culture of transparency, fewer conflicts of interest, and higher quality programs.

As a result, many people ask me how I can build a fiscally responsible and ethical nonprofit.  The five steps outlined below can help a board or staff member assess whether an organization has sufficient safeguards in place to adequately manage the funding it receives. 

As always, it is important to check and consult with your legal counsel, auditor, and accountant to ensure compliance with all new and updated laws, circulars, and regulations at the local, state, and federal levels. 

Running a Fiscally Responsible Nonprofit

The following 5 steps can help your organization operate a fiscally responsible and ethical organization:

1. There is a fiscal manual that is implemented and outlines all policies and procedures for procurement, donations, restricted funding, and the handling of all money and investments in the organization. 

All written fiscal policies and procedures describe the procedures for handling all financial transactions (e.g., accessing reserves, separation of duties, restricted funding, management of donations, etc.). In addition, staff and board members know what to do when there is a problem with compliance. The process for all financial reporting requirements to the Board and compliance requirements are also described in the fiscal manual. 

2. There is a clear separation of all duties that are practiced and outlined in the fiscal manual to ensure fiscal responsibility. 

This means that a singular person does not have sole control over all components of a financial transaction. A key element of effective internal controls impedes one person from exclusively initiating, recording, authorizing, and reconciling a transaction. Thus, the person who opens the mail or processes donations should not be the person who makes bank deposits or signs checks. Separation of duties also ensures that mistakes can be caught by another person. In cases where there is actual malfeasance, it makes it difficult to cover up. 

It is worth noting that these strict separations become more difficult with smaller organizations, particularly if there is only 1 staff member, but steps must be taken under the advice of your auditor and accountant to ensure the strongest internal controls possible. 

3. Policies and procedures are consistent with Generally Accepted Accounting Principles (GAAP) and all appropriate government circulars/ policies.  

GAAP provides the definitions of accounting concepts and principles and sets forth the rules and processes that nonprofits must follow with respect to planning, recording, and reporting on their finances. For nonprofits that receive funding from the federal government, their policies and procedures should be consistent with government circulars A-122, A21, A110, and A-133.

It is important to note that contracts or grants that are managed through states or local governments may have additional required policies and procedures that they want nonprofits to adhere to. This is why it is critical to seek the advice of your contract manager, auditors, accountant, and/or legal counsel. 

4. All staff and board members have been trained on and can easily access the fiscal policies and procedures. 

In high-impact and ethical organizations, the implementation of fiscal policies and procedures is attributable to a combination of the skill sets of the implementing staff/ board members and optimal organization systems that support compliance. For example, there is an appropriate number of staff and board members that possess the optimal skill sets. These individuals are the ones who are tasked with the implementation and monitoring of fiscal policies and procedures. They also have sufficient time and financial resources to carry out the implementation function. As a result, all staff and board members know what to do when there are violations of the fiscal policies and procedures. Furthermore, there is a formal process in place to consistently assess if changes are needed to update systems or programs that are on a regular schedule

5. There is a strong culture of fiscal compliance and self-correction. Ideally, there are no or very minor compliance violations in formal external audits by government or independent auditing firms. Furthermore, when issues surface, corrective plans are immediately put into place with the following supports: 

     ** All corrective plans are monitored

     ** Official responses are provided with corrective plans to auditing institutions,

     ** Corrective plans are submitted within the allotted time frame,

     ** Corrective plans are implemented for violations,

     ** Staff and/or board members receive appropriate training on the corrective actions,

     ** Corrective plans are monitored, and

     ** Progression on corrective plans is documented

The Broader Impact of Being Fiscally Responsible:

Internal controls are an integral component to ensuring a nonprofit is fiscally responsible and functions ethically because they use checks and balances to prevent the misuse, mismanagement, and misappropriation of nonprofit assets and funding. They serve as a safeguard to help nonprofit leaders and board members uphold their fiduciary duty to ensure that the money the organization raises is spent appropriately to advance the agency’s mission.

It is important to note that the benefits of strong internal controls extend beyond oversight and accountability. Our findings in our research imply that fiscal controls may have a greater impact on the overall functions of an organization. We found that stronger organizational controls create better environments for staff and allow for quality programs. In fact, the more likely organizations are to have strong fiscal controls, the more likely there will be better quality of care, fewer conflicts of interest, a greater culture of transparency, and less overtasking, and they will be less likely to choose compliance over the mission. 

Share Your Approach to Fiscal Responsibility

Please share with us your experiences below. Tell us which fiscal accountability strategies have been most effective in your organization and helped to build ethical organizations. 

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Need Help Working with ETHOS?

Consider a new framework for structuring the work of your organization. Integrate ETHOS into your daily management practices, which stands for Ethics, Transparency, Harmony, Organizational infrastructure, and Sustainability. Do not hesitate to reach out to me for a free half-hour consultation to see how to get started. I am always happy to help and support you!